The $11.8 billion mistake that led to the collapse of Bed, Bath & Beyond forcing 360 stores to close: Chain spent a huge amount trying to buy back its stock since 2004 in an expensive buyback program
- Bed, Bath & Beyond has accumulated $2 billion in debt through expensive stock buybacks
- The company participated in an active share buyback through February 2022
Bed, Bath and Beyond filed for bankruptcy this week, according to CNN, forcing it to close 360 stores, and its biggest failure was the $11.8 billion it has spent since 2004 to buy back its stock.
Bed, Bath & Beyond accelerated its stock buybacks in July 2014, taking on $2 billion in debt to fund the stock buybacks, as it began to face pressure from activist shareholders to improve its stock performance.
The company had been carrying relatively little debt up until that year, and set Bed, Bath & Beyond on a path to accumulating debt that ultimately proved unsustainable.
Stock buybacks are a way for companies to return cash to shareholders indirectly — without having to pay taxes as they do on dividends.
The purpose is to reduce the number of shares outstanding to make each remaining share of stock in the hands of investors more valuable.
Bed, Bath and Beyond filed for bankruptcy this week, forcing it to close
According to its financial filings, Bed and Bath has spent $11.73 billion buying back its shares since 2004 at an average cost of more than $44 per share.
Companies often face pressure from the markets to buy back shares, particularly from “activist” shareholders.
We understand that they have equity contributors to serve. Overall, we prefer using cash flow to reinvest in the business, said Sarah Wyeth, principal credit analyst for the consumer and retail sectors at S&P. “Even mergers and acquisitions will be less risky than direct stock buybacks.”
Bed, Bath and Beyond has participated in an active stock buyback program through February 2022, spending $230 million on stock over three months.
I spent an average of $16.04 per share.
However, his efforts to prop up the share price were largely futile.
Its stock is down 83% last year, and another 88% so far this year before closing at 29 cents a share on the Friday before filing for bankruptcy.
Alan Sloan, retail expert writing on Yahoo News Finance In January he said: “One of the main reasons why the company screws up is because when it comes to its stock, the company is violating a cardinal rule of retailing — buy cheap.
Can you believe that Bed and Bath spent over $11.7 billion buying back nearly three-quarters of its shares?
At an average cost of about 15 times the current share price? And it was only two months ago, when she was already in a desperate financial situation, that she continued to buy her shares? (Without rationale, as far as I can tell).
The BBBY-approved buyback program is not a unique way to improve stock performance.
This comes after Chevron recently announced plans to buy back $75 billion worth of its shares with a record windfall profit that came from high oil prices.
Share buybacks in US companies reached a record £936 billion according to S&P Dow Jones Indices, up from $882 billion in 2021. Share buybacks are expected to reach $1 trillion this year.